Basharat

CHAPTER # 1

INTRODUCTION TO THE REPORT

1.1 INTRODUCTION:

Students of BBA (HONS) Finance studying courses leading to Bachelor degree in

Business Administration are required to undergo an internship program of two months

duration. This is an essential academic requirement. The internship is followed by

comprehensive report writing, required to submit to Supervisor Government College

of Management Sciences Abbottabad. This report is properly evaluated on the basis of

its description and analytical capabilities by internal and external examiners.

1.2 PURPOSE OF STUDY:

The purpose of the study is to work in real life situation and learn banking practice. In

this context its objectives are:

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

analysis.

To develop concrete and feasible recommendations.

To improve report writing skills.

1.3 SCOPE OF STUDY:

Banking is much diversified field and has various dimensions and treatments.

However, for a meaningful dialogue resulting in a definitive conclusion the

study for this report has been confined to banking operations as the objective is

to make an acquaintance with the practical aspect of banking.

1

1.4 LIMITATION OF STUDY:

It is to admit that the study attempts only those aspects, which are closely relevant to

the purpose of the study facts and figures, which otherwise might be equally

important, but not having a direct bearing on the conclusions arrived at this study,

have been ignored.

The most important limitation from which the study suffers is the non-availability of

information in a manner required for analysis and the secrecy of the bank. Another

important limitation of the study is time and space constraint.

1.5 METHODOLOGY OF STUDY:

The report was prepared using both primary and secondary data that included the

following methodological tools

i. Primary Data:

Personal Observations.

Discussion with Bank Personnel.

ii. Secondary Data:

Brochures/ Manuals of the bank.

Annual Report

Journals, newspapers and books.

Internet

1.6 Scheme of the Report

Firstly, the report has been divided into four sections and then these sections are

further divided into chapters. These four sections are:

1. Section 1 Introduction to the Report,

2

2. Section 2 Review of the Organization

3. Section 3 Analysis

4. Section 4 Recommendations in order to improve the discrepancies

3

CHAPTER # 2

INTRODUCTION TO BANK OF KHYBER

2.1 Origin of Banking

There is but little information available as to the kind of banks that existed in the earlier ages, or on what system they conducted their business. As most of the nations of antiquity subsisted chiefly on agriculture, they probably had little occasion for banks; for it is only in commercial countries that these institutions have attained to any high degree of prosperity. And as even the commercial nations of antiquity were unacquainted with joint-stock companies or commercial corporations, and had not discovered the use of paper-money or bills of exchange, the business of a banker, even among them, must have been somewhat different from that of a banker of the present day.

The merchants of those early times employed as money, gold and silver bullion; and received it and paid it away by weight. It is probable that the merchants would require that the precious metals they received should be of a certain degree of fineness. Thus when we read of a father in Israel weighing out as a payment 400 shekels of silver, current money with the merchant (Genesis XXIII, 16) - the phrase implies that the money current with the merchant was different from that in ordinary use.

After bullion was superseded by coin, and each nation had a coin of its own, the merchants would necessarily in the course of their business receive coins belonging to different nations, and hence would be applied to by strangers who wished to exchange their own money for the money of the country in which they sojourned. This would take place more particularly in those oriental countries whose inhabitants were accustomed in certain seasons to meet together for the celebration of public festivals.

It is very difficult to trace out the exact origin of banks. It is said that the evolution of

banking business is as old as the concept of money. Crothers in his book AN

OUTLINE OF MONEY says that the present day banker has three ancestor’s

merchants, money lenders and gold smiths. A modern bank is something of these. It is

believed that goldsmiths and grocers of primitive days started keeping deposits of

valuables and jewelleries people on the basis of their sound financial position in the

community. They charged a certain amount from the depositors for the services

rendered in keeping and preserving the valuables in safe custody. But they soon

4

realized that only a small portion of metal and valuable deposited were taken bark by

the people even at the expiry of the stipulated period. They therefore began to make

profit by lending a part of these deposits. In case of lending, it was not always gold or

silver, but issued their receipts which would pass among the people as if they were

gold just like cheques in modern banks. The present day banks are performing the

same functions as performed by the money lenders and goldsmiths of older days.

Therefore it is believed that goldsmiths and moneylenders are the ancestors of banks.

2.2 Nature of Banking

The term bank is supposed to be derived from banco, the Italian word for bench, the Lombard Jews in Italy having benches in the market-place where they exchanged money and bills. When a banker failed, his bench was broken by the people, and he was called a bankrupt.

This derivation of the term, however, is probably wrong. "The true original meaning of banco,"says MacLeod,"is a heap, or mound, and this word was metaphorically applied to signify a common fund, or joint stock, formed by the contributions of a multitude of persons."

A brief account of the first banking operations in Venice will dispel the haze enveloping this subject. In 1171 the financial condition of Venice was strained in consequence of the wars in which the people were engaged. The great council of the republic finally determined to raise a forced loan. Every citizen was obliged to contribute the hundredth part of his possessions to the State, receiving therefor interest at the rate of five per cent. The public revenues were mortgaged to secure the interest, and commissioners were appointed to pay the interest to the fund holders and to transfer the stock. The loan had several names in Italian, Compare, Mutuo, but the most common was Monte, a joint stock fund. Afterward, two more loans were contracted, and in exchange for the money contributed by the citizens, the commissioners gave stock certificates bearing interest, and which could be sold and transferred.

2.3 Banking

Mankind has always been seeking security and protection. This need has led him to

scientific and technological development on one hand and banking development on

the other.

5

In modern times the banking has become so necessary that if is excluded from any

economic system the whole business and economic world will collapse like house of

cards

In this banking development the services of three groups of persons cannot be ignored

1. Money Lender

2. Merchants

3. Gold smiths

The bank of Venice is perhaps the first ever regular bank in the banking history and

was established in 1157 followed by these banks as under:

Bank of Barcelona in 1401

Bank of Genoa(Italy) in 1407

Bank of Amsterdam in 1609

2.5 Banking in Pakistan

The areas constituting Pakistan at the time of its creation were producing only food

grains and agricultural raw material for the Indo-Pak subcontinent. There were

practically no industries, and whatever raw material was produced was being exported

from Pakistan. There were 487 offices of scheduled banks in the territories now

constituting Pakistan.

It was very difficult for the newly born Pakistan to run its own banking system

immediately. Therefore, in accordance with the provision of Indian Independence Act

1947, an Expert Committee was appointed to study the issue. The Committee

recommended that the Reserve Bank of India continue to function in Pakistan until

30th September 1948.Following the announcement of Independence Plan in June

1947, the Hindus residing in the territories now comprising Pakistan started

transferring their assets to India. Moreover, the banks including those having their

registered offices in Pakistan transferred them to India. By 30th June 1948, the number

of offices of scheduled banks in Pakistan declined from 487 to only 195. There were

19 non-Indian foreign banks while there were only 2 Pakistani institutions i.e. Habib

6

Bank and the Australasia Bank. The Government then promulgated the Banking

Companies Ordinance, 1947, to safeguard the interests of both the bankers and the

customers. Governor-General of Pakistan Quaid-e-Azam Muhammad Ali Jinnah

inaugurated the State Bank of Pakistan on May 12th, 1948. The Banking Companies

(Control) Act was promulgated in 1949, empowering the State Bank to control the

operation of Banking Companies in Pakistan. The State Bank sponsored the

enticement of Agricultural Development Bank to attend exclusively to agricultural

Business Administration. Moreover, the State Bank of Pakistan Act, 1956 also

broadened the functions of the State Bank conferring the powers to increase credit

facilities for both agriculture and industry. During this period a new Pakistani bank

was registered and scheduled as the National Commercial Bank Limited in order to

solve the jute export problem in 1949. The expansion in the banking and credit

facilities was further enlarged when during 1959-60 two more Pakistani banks,

namely Eastern Mercantile Bank limited.

2.6 HISTORICAL BACKGROUND OF THE BANK OF KHYBER

The Bank of Khyber was established through the Bank of Khyber Act passed by the

Provincial Assembly in June 1991. It is the only Bank in Pakistan having its head

office at Peshawar.

Meet demand of the business community to have a bank with its head office in

the Province.

Have accessibility of local businessmen to senior management of the bank for

the prompt credit decision making there by accelerating investment in K.P

Have maximum utilization of funds generated in the Province for the

economic development of K.P

It has the credit to introduce Islamic banking in Pakistan.

2.7 Scheduled Bank Status

Up to 1994 the Bank was operating at provincial level as unscheduled bank under the

auspices of the provincial government. But in 1994 it got the status of the scheduled

bank and came under the regulatory framework of SBP, currently operating at the

national level. Due to this status the BoK is also engaged in foreign trade business

7

directly. And moreover in next year they are planning to open branches in

Afghanistan and Dubai.

2.8 The Paid up Capital of the Bank

The initial paid up capital of the Bank was Rs. 400 million, which has now been

raised to Rs. 1,050 million.

The point of distinction between BOK and other national banks is that it acts not only

as a commercial bank but also strives to be a development bank through its emphasis

on financial support, especially to small and medium sized businesses. The Bank has

been showing improvement in all the lines of its business, mainly deposits advances

& profits. The Bank has undertaken a complete computerization of its branch

operations and has also issued Traveler Cheques and it has entered with American

Express and Diners Club Pakistan limited for issuance of their respective credit cards

from BoK counters. BoK has correspondent banking relationship with several

international banks and financial institutions, and is competing hard with other banks

for its share of business.

2.9 BRANCHES IN PAKISTAN

Currently the bank has a total branch network of 107 Branches Plus 4 sub branches

throughout the country. At present, 40of its branches functioning as dedicated Islamic

Banking Branches, whereas 63 branches are conventional banking branches.

8

THE VISION

“To become a leading Bank providing

efficient and Dynamic Banking Services in

both Islamic and Conventional Sectors.”

THE MISSION

” To increase shareholders' value and

provide excellent service and innovative

products to customers through effective

corporate governance, friendly work

environment, and contributing towards an

equitable sub-economic growth”

2.10 CORE VALUES OF BANK OF KHYBER

The core values of BOK are as follows

Highest quality of service

Professionalism, Integrity and Team work

Innovation and utilization of latest technology

Corporate Social Responsibility

2.11 OBJECTIVES OF BANK OF KHYBER

Under the Bank of Khyber act of 1991 of the provincial assembly of N.W.F.P. the

banks objectives are as follows:

To mobilize private savings and funds for diverting the same in to

productive channels and ensure their availability.

9

To promote industrial agricultural and socio -economic processes

through the active participation of private sector in the province.

To provide employment opportunities.

To make people more of mind to have savings habits.

To increase wealth of stockholders and see the bank earning

To ensure growth and development of the bank. To use resources of

the bank efficiently and effectively.

To increase the deposit base of the bank.

To participate in the development of the country.

Help under-developed areas and create employment opportunities, especially in the

rural areas of the province.

Create a diversified and sound portfolio for utilization of idle funds and their

investment in the existing and new ventures especially in the pioneering of high- tech

agro-based export oriented and engineering projects to ensure maximum returns.

Participate and seek the share of the province in the capital market of Pakistan by way

of subscription through locally pooled resources in the leading stock exchanges of the

country and eventually paving the way for establishing a stock market in the province.

2.12 Functions of bank of Khyber

Like other banks, BOK is also performing all those functions that are expected of any

scheduled bank. To achieve its objectives of participating in the development of

Pakistan and its economy, efficient and effective use of the bank’s resources to ensure

its sustain BOK growth and earn profits for the shareholders and itself, BOK performs

various functions.

10

2.12.1 To Accept Deposits

Deposits are the life blood of a bank as it largely depends on them for earning profits

by advancing the deposited amounts of its customers. These are of several kinds at

BOK they are as follows.

2.12.2 Current Deposits

Current deposits are the demand liability of a bank. Businessmen usually open these

and the bank does not pay much interest on them. Hence, they are also termed as non-

profit BOK demand accounts that can be opened with a minimum balance of Rs.

5000/-.

2.12.3 PLS- Saving Deposits

These are also called the checking accounts because the depositor can withdraw

money by way of cheque and deposit amounts while filling in the pay in slips. Profit

on these is calculated on monthly basis but is paid every months after declaring the

profit rate. The basic feature of this kind of account is the idea of sharing profit and

losses as per the Islamic teachings and non-interest based banking. This is opened

with a balance of Rs. 100/-

2.12.4 Fixed Deposit Account

These are also called Fixed Deposits and can be withdrawn by the customers after a

stipulated period of time. Profit is paid to the depositor depending on the duration for

which the amount is kept with the bank.

2.12.5 To make Advances

The money taken from the customers in the form of deposits is utilized by the bank in

the form of advances and credits given to corporate and retail customers depending on

their eligibility. Thus, by doing so the bank performs an intermediary function by

acting as a bridge between those who need funds for specific purposes and those who

have surpluses. The credit facilities given by the bank are of two kinds fund based and

non-fund based. The first includes short, medium and long-term loans and the second

type letters of credit and guarantees.

11

2.12.6 Agency Services

BOK provides agency services to its customers besides the customary deposit and

advances function. These include,

Collection of cheques, bills and promissory notes.

Clearance of utility bills such as electricity and Challans for its customers

Cheque encashment facility for those customers who have their accounts

maintained at designated branches and who do not wish to carry cash with

them while traveling.

12

CHAPTER # 3

BOARD OF DIRECTORS

3.1 Board of Directors

The bank’s ultimate governing body is the “Board of Directors” comprising of eight

members. The government of KHYBER PAKHTUNKHWA is the major stakeholder

of the bank therefore the chairman and all the members of the board are nominated by

it.

The Managing Director of the Bank represents the management in the Board and acts

as a member of the Board. There is a company secretary who calls meeting of the

board and maintains the minutes and proceeding of the Board of Directors. The

current members of BOD are as follows:

3.2 MANPOWER POSITION

According to the manpower position report of 31th December, 2013 the bank had

hired a total of 1800 employees, among which 1200 are permanent employees of the

bank while the others employees are serving the Bank on contractual and casual basis.

The contractual and casual staff includes tea boys other supportive staff, and some of

the employees at officer cadre. Besides this staff there are free lancers attached with

the Bank that serves and guides the bank in different matters. These include Legal

Advisors, Contractors etc.

3.3 ORGANIZATIONAL STRUCTURE OF BANK OF KHYBER

Organizational structure is defined as “the set of elements that can be used to

configure an organization1.” As technology, environment, size, lifecycle and strategy

can all influence an organizational design, it should come as no surprise that

organizations adopt many different kinds of design. Most design, however, fall into

one of the four basic categories. Others are hybrids based on two or more of the basic

forms.

The organization structure of BOK is based on functional (U-Form) design. The

Functional Design is an arrangement based on functional approach to

1

13

departmentalization. Functional approach to departmentalization means grouping

together those jobs, which involves similar activities. This design has been termed the

U-Form (for unitary) by the noted economist Oliver E. Williamson2. Under the U-

Form arrangement, the members and units in the organization are grouped into

functional departments such as production and marketing etc.

3.4 ORGANIZATION HIERARCHY

At each position the duties, goals, functions, responsibility and authority are clearly

explained. The channels that delegate these activities are called organization

hierarchy. This must be set in such a manner to best accomplish the organizational

goals. The Bank of Khyber ultimate governing body is the board of directors while

the day-to-day affairs of the bank are managed by a Managing Director appointed by

the board of directors for a term of three years on contract with the consent of the

Government of KHYBER PAKHTUNKHWA. Under the supervision of MD there

are executive vice presidents (EVP) the senior most officials in the bank’s hierarchy

each heading a bank unit Next to EVP there are senior vice presidents (SVP) and vice

presidents (VP) heading their respective divisions and departments At the branch

network of BOK there are branch managers and assistant branch managers.

The nomenclature of various posts in the bank is as under:2

14

Executive Vice President

Senior Vice President

President

Assistant Vice President

Officer Grade-I

Grade-II

Grade-III

Junior officer

3.5 DEPARTMENTALIZATION OF BOK:

15

Departmentalization is the process of grouping jobs according to some logical

arrangement. The manner in which activities should be divided and formed into

specialized group usually referred to as departmentalization. BOK has used the most

common base for departmentalization i.e. the functional approach to

departmentalization. Functional departmentalization means where grouping of jobs

takes place according the same, or similar activities. The word function is used here to

mean organizational functions such as Business Administration and production, rather

than the basic managerial functions such as planning or controlling. The head office

of BOK is divided into the following departments

Credit Division

Business Administration Division

Islamic Banking Division

Internal Audit Division

Information Technology Division

Human Resource Division

Treasury and Investment Division

Banking operations Division

Marketing Division

3.6 Credit Division:

Credit division of BOK continuously tailored its policy frameworks in accordance

with the tough competition faced in the wake of reducing mark up rates scenario and

increase liquidity in the market. Introduction of new schemes like house, consumer,

car and Micro financing will definitely improve and enhance the credit portfolio.

BOK is strengthening its grip on the target market for these schemes the credit

monitoring cell, credit department, consumer Business Administration department and

micro Business Administration department comes under the umbrella of credit

division.

3.7 Business Administration Division:

16

The Business Administration division is responsible for fiscal managing, financial

control, financial reporting and accounting function of the bank. This division ensures

that the accounting record and systems are maintained in accordance with the internal

policies, regulatory requirements and international accounting standards. It establishes

policies and procedures relating to the Business Administration functions, monitors

returns on earning assets and report on various performance indicators including

assets/liabilities mismatch. The division directs control of the budgeting process in

accordance with the annual plans, policies, management’s directives and strategies.

Internal auditors, tax authorities and SBP inspectors are the advisories of this

department.

3.8 Islamic Banking Division (IBD):

The division is working according to the guideline of Shariah supervisory board. The

objective of the IBD is to implement the decision of the board of directors to

gradually convert the whole bank into an Islamic bank within three years under the

supervision of the Shariah supervisory board as per rules and regulations of the SBP.

IBD plans to convert twelve more bank branches in 2013 and the remaining in 2014.

3.9 Internal Audit Division (IAD):

The internal audit division works independent of the management and reports to audit

committee of the board of directors (BOD). The audit committee comprises of three

non-executive directors and the head of IAD has freely access to the chairman of the

committee. The IAD consist of two departments namely audit & inspection and

compliance & implementation.

IAD provide regular training to its personnel in various field of banking to enhance

their skills and proficiency. It provides guidance and creates awareness among the

employees of the Bank regarding bank’s policies, procedures and regulations and

compliance thereof.

3.10 Information Technology Division (ITD):

Information technology department progressed in the last eight years and trying its

best to stay abreast in the field of fast developing technology. In order to achieve its

goals, the management has decided to start on-line banking in the very near future,

17

this will facilitate the customers of the BOK and they will be BOK to transfer money

between any two BOK branches and throughout the country.

3.11 Human Resource Division (HRD):

HRD plays a vital role in carving the present and future image of an organization by

managing the employees in most beneficial and effective manner. The functional area

of HRD consists of recruitment, training, performance appraisals, planning and career

development and above all grooming of staff to adhere to office ethics and social

norms. HRD provides on the job as well as off the job training to the staff in diverse

areas of banking and management. The training relies on both internally arranged

courses as well as external courses at institute of repute in the country.

3.12 Treasury and Investment Division:

BOK is now gearing towards revamping its treasury, would soon assume a more pro-

active role in serving BOK customers, especially the corporate clients. Upgrading the

human resource skills is enhancing its capacity and the I.T system .In future BOK will

be BOK to manage corporate customer funds and quote money market related rates

for short-term corporate size loans.

3.13 Banking Operations Division:

The Banking operations Division is mainly responsible to manage the operations i.e.

work processing functions in the bank. The banking operations division controls

branch operations and international banking department. This division propose

operational polices, procedures and ensure strict compliance of the same through

liaison with internal audit division.

3.14 Marketing:

The marketing division of the bank is responsible for the formulation and

implementation of Marketing Strategy of the Banks products both on assets and

liabilities keeping in mind the business environment of the province. Accordingly the

division works to popularize the Banks deposit schemes and loan products among the

people with a view to improve business and over all image of the Bank.

18

3.14 SAMD:

The main responsibilities of the division include the recovery of all irregular as well

as bad debts of the bank. As a part of re-engineering of the division, a full-fledged

collection unit was established whose major assignment is to follow-up the delayed

accounts from the very 1st day of default in order to mitigate the risk of further

infection.

In order to bring effectiveness and cost control SAMD coordinators closely with

credit, IT and MIS division.

3.15 BOK Plan For Future:

On-line Banking

Installation of ATM’s at designated branches.

Opening of new branches

Established of Exchange Company in Middle East

BOK brokerage house.

Share flotation

Islamic banking products

19

CHAPTER # 4

SOURCES AND USES OF FUNDS

4.1 Sources of fund of BOK:

BOK is a business firm and its main objective is to earn profit. It provides a number

of services to its customers in order to achieve its objective. It offers a variety of

interests bearing obligations to the public. These obligations are the sources of funds

for the bank and are shown on the liability side of the balance sheet of a bank. The

main sources of funds of BOK are deposits.

Fixed Deposits

Saving Deposits

Current Deposits

These deposits are the major sources of funds of BOK.

4 1.1 Fixed Deposits

Time deposits are lodged with the bank for a fixed period of time. The bank pays

interest to the depositors.

4.1.2 Saving Deposits

Saving deposits is an important source of BOK funds. The bank pays interest on the

minimum monthly balance to the depositors at the end of every month. The depositors

are normally allowed to withdraw a limited amount of money only twice a week.

4.1.3 Current Deposits

A current account is a running account which is continuously in operation. The bank

does not pay any interest on these deposits.

4.1.4 Reserve for contingency

Reserve for contingency is an account held by the bank for the purpose of

accommodating losses realizes insecurities and certain other considerations.

20

4.1.5 Other Borrowing

Borrowing in an other of on the liability side of the balance sheet of a bank. The BOK

can also raise fund for short period of time by borrowing from the central bank. The

BOK also borrows funds by the sale of promissory notes, loams & securities.

4.2 Uses of FundsThe use of funds is an important side of the bank operation.

BOK uses of funds mainly consists upon

4.2.1 Primary Reserve

The primary reserve is the each asset held by the bank The cash assets include

Required reserve with central bank

Cash in currency coins

Demand balance with other banks

Cash items in the process of collection.

4.2.2 Bank Loans

The bank loans considered are an important component of uses of funds of BOK. The

BOK advance loan to individuals, financial institutions, trades, farmers, industrialists,

security broker dealer etc, for different periods of time. Most of the bank loans are

advances are against security. The bank thus covers the risk of loss in case the

borrower is unwilling to pay the loan at maturity.

4.3 SOURCES OF INCOME OF BANK OF KHYBERBOK is profit oriented organization as already discussed that it was established in

private sector to earn the profit and it continued its function.

Source of income are:-

1) Interest: The major portion of it’s the interest, which is charge on different

types of loans granted.

21

2) Profit: BOK has started different projects on the partnership basis and the profit

from that project is distributed between bank and partners according to the agreed

ratio.

3) Collection charges on Utilities Bills and Chileans: BOK also received

the utility bills from public, Rs.8 is charged for the collection of per electricity bill,

Rs.10 charged per Chelan.

4) Commission: BOK is performed different services for its customers and

commission is charge for the award of that service on line commission of BOk is

Rs220 of on line charges and Rs.110 commission is on Demand draft.

4.4 EXPENSES OF BOK

1) Interest on Deposits:

BOK knows its money for lending. It used the money of public and interest is paid on

that deposit to the depositors. Different rates of interest are fixed for different schemes

offered by BOK.

2) Expenses of Management:

BOK has employees and also retired employees. The salary, pensions and other

allowances are paid to them

3) Marketing Expense:All the expenses of management of research, salaries and advertising are considered

as marketing expenses.

4) Bad debts or Loan written off: A huge portion of income is become expenses in

the shape of bad debts.

22

CHAPTER # 5

CASH, REMITTENCES, CLEARING DEPARTMENTS5.1 Deposited department:As per the definition of “Banking” under sec 5(b) of BCO 1992 one of the main

functions of a bank is to accept deposit. Deposits are the backbone of any bank other

functions of the bank primarily depend upon the type and size of deposits.

5.1.1 Function perfumed by cash and deposit department in BOK Abbottabad

Branch (0113):

Jinnah road Abbottabad Branch accepts deposits under the following three accounts.

Current account

PLS Saving account

Terms Deposits

5.1.2 Opening of Account:

To open an account in BOK the customer will have to fill an account opening form in

front of bank officer. He has to sign in all required places in front of the officer.

5.1.3: Documents Required in Account Opening:

N.I.C Copy.

Account opening form (provided by bank)

Two photograph (in case of illiterate person)

Specimen Signature card (Provided By Bank)

Cheque Requisition Form

Introduction of Account.

5.1.4 Types of Account:

a. Individual Account:

In this account a single customer operates the account. The banker will run the

account according to the rules, but if the customer gives special instructions the Bank

will have to follow it.

23

b. Joint account:

In this type of account two or more than two persons will open the account. The

account will be operated by one account holder in case of (either of the survival). If

the instructions are not given, all the account holders will have to sign the check.

5.1.5 NATURE OF ACCOUNTS IN BOK

A) Current Account:

These are non-profit BOK demand accounts. The account can be opened with

minimum amount of rupees 5000/-. These accounts are usually maintained for

business purpose. Due to enormous competition BOK has introduced daily profit

current account for corporate clients called (UNISEVER) minimum balance required

is Rs. 100,000/-. If minimum balance requirement is not met, bank is authorized to

recover predetermined charges.

B) PLS Saving Account:

These accounts were intended with the aim of encouraging thrift among people. These

accounts can be opened either in Pakistani rupees or in few major currencies of the

world. Bank offers (4%- 6%) return on these accounts. The basic feature is the profit

and loss sharing as according to non-interest based banking system. These accounts

can be opened in the name of; individuals, joint names, trust accounts, charity BOK

organizations.

Unlike current accounts, Zakat is applicable BOK on local currency saving accounts.

Minor’s accounts can be opened on the condition that their guardians shall operate

these accounts.

C) Term Deposits:

Term deposits are also called fixed deposits. These can be with drawn after a

specified period of time. Interest is paid to the depositor on all fixed or term deposits.

5.2 Remittances department:Current business trends demand fast movement from one geo-graphic end to another.

Latest technology and telecom data transmission has made it possible to make such

transactions with in minutes. BOK Remittances Department performs following

functions.

24

5.2.1 Demand draft (D.D):

D.D is a negotiable instrument issued by branch of the bank drawn on other branch of

the same bank.

A) Procedure for D.D:

Purchaser is asked to fill in an application form duly singed by applicant. Three things

should be maintained in the form.

Name of Payee

Place of payment

Amount of D.D

Commission is charged on D.D as bank income. The applicant is asked to deposit the

cash specified on the application form to the teller. After depositing cash the

remittances incharge prepare a D.D. That is singed by two officers must having power

of attorney.

Bank also provides this facility to general public who don’t have account in BOK.

They will have to submit a N.I.C copy along with D.D application form

5.2.2 Telegraphic transfer (T.T):

Transfer of funds to another branch of the same bank with the help of test numbers. If

the test number agrees the bank make payment to the party.

A) Procedure for T.T:

The procedure for T.T is same as D.D. But in D.D it is given on a printed-paper and

singed by two officers but, in T.T, only test number is given to the customer.

5.2.3 Mail Transfer (MT):

When the money is not required immediately, the remittances can also be made by

MT. Here the selling officer of the bank sends instructions in writing by mail to the

paying bank for the payment of a specified amount of money. The payment under

transfer is made by debiting the buyer’s account at the sending office and crediting it

the recipient’s account at the paying bank. BOK takes mail charges from the applicant

where no excise duty is charged.

25

5.2.4 Pay Orders (PO):

Pay order is banker Cheque issued favoring a named beneficiary. The issuance bank is

discharged by payment in due course. Application for the PO stamped and the

customer’s account balance is checked or cash received for the amount PO and other

charges. Pay Order leaf is typed and crossed if required and signed by two authorized

persons. Thereafter it is delivered to the customer. PO can be cancelled at original

purchaser’s request in writing and surrender the instrument, which then marked

canceled along with other documents and prior entries.

5.3 Clearing of bills:

General:

Bank can make payments of only open Cheques on the counter payment. Payment of

cross Cheques cannot be made on counter its payment is possible through collecting

bankers. The function of clearing department is divided into two main classes.

Inter Branch Transaction

Inter Bank Transaction

5.3.1 Procedure of Clearance of Cross (Cheques):

Whenever bank receives a cheque of other bank from the client he cannot make

payment on the counter. The first job banker has to perform is to put a special

crossing across the face of cheque. By special crossing cheque is secured. If it is

stolen the paying banker would not suffer because of non-endorsement. On the back

of the cheque the stamp is

Made of payee account will by credited on realization. It is signed by authorized

person. Along with the cross cheque the customer has to fill the deposit slip. The half

part of slip is given back to the customer. after the special crossing and is necessary

endorsement the banker write the amount along with cheque number on paper and

attach with each slip. Then again on he smile paper the amount of all the Cheques

along with the bank names are added and attached to cheque presented for clearing,

and advice is also attached with the cheque presented for clearing. The following

entry is passed on sending the cheque for clearing.

26

Bill lodged for clearing ……. Dr

Bill for collection ………. Cr

The Cheques are sent on the same day for clearing. The bank receives it on other day.

The paying bank receives the receipt and the amount is credited in the respective

account. The paying banker passed the following.

Bill for realization. ……. Dr

Bill lodged. ………. Cr

The other entry passed its Dr. HQ account and Cr Party account.

5.3.2 I B C:

It means “Inter Branch Transaction” when BOK received a cheque a drawn on the

customers of his branch; first they will cheque the amount in the account on which

cheque is drawn. Of the required amount is availed in the account they will match the

signature on the cheque along with their SS card. If all the requirement are completed

the bank will send an IBCA to the bank from which cheque is sent

5.3.3 OBC:

When the bank receives the cheque from its customer or from any other spoke branch

drawn on any other bank of any other city They sent the Cheque to the BOK main

branch of that city, after receiving OBCA the bank will passed the

Following entry In case of his own customers.

Ho a/c………. Dr

Customer a/c………. Cr

In case of spoke branch

Ho a/c………. Dr

Spoke Branch a/c………. Cr

27

CHAPTER # 6

CREDITS

6.1 INTRODUCTION:

What is Credit?

The amount extended to a borrower for a certain period at a rate of interest and at

terms of repayments as agreed b/w the borrower and the lender backed by a collateral

or loan security; synonymous to debt, loan and borrowing.

6.2 6.2 FUNDAMENTALS OF CREDIT:

How much money do you want?

What do you want the money for?

For how long do you want the money for? (short-term is less than 1 year; long

term is more than 1 year)

How will you repay the loan?

6.3 CREDIT INITIATION:

OBJECTIVES:

To implement a solid credit initiation process whereby the inherent risk in

each credit proposal are properly analyzed and effectively controlled .

Recommendations for all types of credit facilities across the bank are

submitted in the form of standardized credit approval package

Establishing/Maintaining contact with prospects/Clients

Receiving credit requests from prospects/ clients

Collecting the required information from the applicants as well as independent

sources.

28

Incorporating the information in the forms

.

CREDIT POLICY:

This section outlines the basic principles, which the Bank will pursue for extending

credit facilities. These principles will serve as useful guidelines and precautionary

measures for prudent lending.

Bank will not extend and such credit facilities, which violate the rules and

regulations, prescribed by SBP/local central banks from time to time.

Bank will participate in syndicate financing if the transaction fulfils the

parameters established by the Bank.

Bank will prior to allowing the facilities satisfy it that these are properly

secure with all security angles perfect.

Bank will ensure that facilities allowed are well aligned to customers’ credit

structure and specific needs.

Facilities provided by the Bank will be well diversified into such

industrial/trading sectors where the Bank has the skills and resources to

achieve a strong market position and adequate return on capital

Customer’s liquidity and repayment capacity will be determined by a careful

analysis of Cash Flow statements to ensure that customer’s financial condition

remains satisfactorily liquid to repay the Bank’s dues and the invested funds

are not locked up.

It will be against Bank’s policy to provide financing for speculative,

Undesirable activities such as gambling, gun-running, drug pushing etc.

Bank shall not allow any credit facility to clients, who have been allowed

waiver/write offs in the bank. Any exception to this will need approval of the

highest level including the President

Bank shall require and maintain adequate margin against credit facilities in

accordance with State Bank of Pakistan’s Prudential Regulations/local central

29

banks’ instructions. However, the appropriate sanctioning authority, if deemed

necessary, may stipulate a higher minimum margin.

Mark-up/Interest rates prescribed in credit proposal shall not contravene the

relevant State Bank of Pakistan/local central bank’s regulations, under any

circumstances. The Bank will issue guidelines on charging of

mark-up/interest, from time to time, keeping in view the changing

credit/market condition.

Bank shall continue to invest on management development to ensure

maximum output/utmost participation of concerned staff in credit operation.

The highest Credit Committee will approve any addition/amendment/deletion/

deviation in this Manual to meet the regulatory/legal requirement of any

overseas location. However, if any addition/amendment/deletion/ deviation

weakens any provision

In this Credit Manual the same shall require ratification by the Board of

Directors.

6.4 CREDIT STRUCTURING & APPROVAL:

All credits will be approved by at least four members of the credit committee

One of the credit committee members individual limit must cover the amount

of proposal

Each credit committee member will independently review the proposal from

his own judgment and approve the credit

Written comments will be provided by any of the credit committee member in

case of his disagreement or any amendment in the terms and conditions of

credit.

It is the responsibility of RM to ensure that complete and legally enforceable

documentation is obtained.

30

All Documents intended as security or support for credit facilities must be

selected and reviewed for appropriateness to the transaction, adequate

coverage of

The risk involved completeness, proper execution and registration if required.

The documents shall be wetted by the legal advisor of the bank / legal

division.

6.5 Importance of Loan Documents:

Legal requirements.

Evidence of authority to borrow.

Evidence of indebtedness.

Evidence of the loan’s terms and conditions.

Evidence of collateral in the case of secured loans.

Bank can enforce its right only if documents are adequate, perfect and proper. All

forms/documents must be completed in respect of name, date, place, amount, expiry,

witnessing. During documentation bank gets to know of existing encumbrances on

assets, if any documentary evidences.

6.6 CREDIT DISBURSEMENT:

The object is to protect bank’s interest and ensure recovery of bank’s facilities

extended to customers.

No disbursement or booking of any facility will be permitted before it has

been ensured that all required documents have been obtained

The DAC will not be issued unless all the required security/support

documentation have been received and lodged in the vault.

31

Except otherwise provided all documents received as security or support will

be lodged with CAD at branch or region which will constitute necessary

custodian

After receiving the documents CAD will issue DAC (Disbursement

Authorization Certificate)

6.7 CREDIT APPROVAL:

OBJECTIVE:

To approve all credits ‘jointly’ by the designated officer and to ensure and achieve

the best credit judgments.

POLICY:

All credits will be approved by at least four (4) members of the credit committee. One

of the Credit Committee member’s individual limit must cover the amount of

proposal. The composition and respective limits of Credit Committees and individual

members will be decided and announced by the President from time to time.

CREDIT APPROVAL RESPONSIBILITIES

Each Credit Committee member will independently review the proposal, from

his own judgment and approve the credit. Written comments will be provided

by any of the Credit Committee members in case of his disagreement or any

amendment in the terms and conditions .credit.

32

6.8 CREDIT MANAGEMENT IN BANK AIMS & OBJECTIVES:

In order to ensure that desired directives are clear and communicated to the concerned

functionaries/departments, the Bank normally formalizes their credit policy manual

with the aim to achieve the following main objectives:

To define the credit policies

To maintain the desired mix and volume of loan portfolio in relation to the

Bank’s total deposits.

To ensure higher returns on Business Administrations

To improve the quality of Bank’s credit portfolio

To achieve targeted financial results with a higher degree of reliability and

avoid losses through a strong credit process and an efficient and effective risk

management system.

CHAPTER # 7

SWOT ANALYSIS

7.1 SWOT Analysis (Strength Weaknesses Opportunities & Threat)

The main purpose of doing SWOT analysis is to highlight all aspect of the bank. We

can say that it is a tool to get a quick overview of firm’s strategic situation etc. it is an

effective technique for analyzing the strengths, weakness, and opportunities and threat

to an organization. It tells about the firm position. It helps the readers to understand

the performance of the firm, bank etc vary easily. It forecast the future status and

points out the problems likely to come in achieving the specified objectives.

As like the other bank the BOK have some strength, weakness, opportunities and

threats, which are.

33

7.1.1 Strength

Strength is present within an organization and when utilized, become a means of

distinction from competitors.

BOK is a schedule commercial bank with good branch network in

NWFP.

Being a provincial govt. bank it is considered more secure.

Have branches in all the provincial capitals.

The banks offers new schemes and facilities from time to time which

keeps not only the clients of the bank committed but also leads to a

growing sound base of deposits.

Another leading point of the bank is the trust and help expressed by

international financial institutions like IFC and DEG, which have

opened new ways for the bank to generate funds.

The open communication system and friendly environment developed

by the Management and staff of the bank makes it very easy for the

Management of the bank to take the right decision at the right time.

Most of the banks in the country lack such type of environment.

As compared to the other Pakistani banks its staff is well qualified,

skilled, knowledgebase, courteous and can handle any situation

tactfully.

As it is provincial bank for KHYBER PAKHTUNKHWA so it is

easily access BOK to the business committee of the province.

The banks Head office in the Province so the business people can

easily access to the top management

Low level of employee satisfaction and commitment.

The bank employees are from the same province so they understand

the environment and easily meet the need of the people etc.

The bank has the authority to deal in foreign exchange and guarantee

for importers and exports

34

Due to provincial bank it knows the provincial market very well as

compare to other banks.

One of the major strength of the bank is Micro Business

Administration Unit (MFU) which ultimate goal is to Business

Administration the project in rural area and approve a small lone.

As it is provincial bank it has more branches and therefore accessible

to more potential customer then any other bank in the province.

7.2 Weakness

Weaknesses are the shortcoming in the structure or functioning of the organization

and need to be taken care of immediately. It is usually because of these weaknesses

that the competitors leave us behind in the race.

Lack of transparent system of recruitment and selection.

Numbers of branches are very low as compare to other bank for the

competition.

Unattractive branch locations and interior.

Most of the employees are not motivated and lack technical knowledge

and are scared about their career development.

Salary and other benefit are small in number.

As it is Provincial bank so there is some influence by the provincial

government in decision process.

No fix tenure for promotion.

Overstaffing.

Low level of employee’s satisfaction and commitment.

The space in BOK head office is very limited so the bank has shifted

some of their departments to State Life Building but still the

departments are overcrowded which affects the employee’s

performance at the head office.

The bank has no proper marketing.

Lack of sound training system according to organizational goals.

35

Over reliance on Govt. of KHYBER PAKHTUNKHWA deposits, few

deposits from private sector.

7.3 Opportunities

Opportunities are always present in the external market whoever grabs it first, is the

market leader.

Conversion of existing branches to Islamic banking.

As the situation in Afghanistan is getting better slowly and gradually

multinational companies and other Rehabilitation Agencies are

opening their offices in Afghanistan. To facilitate the rehabilitation

process and the trade between Afghanistan and other countries

including Pakistan. BOK should open their branches in Kabul and

Jalalabad inside Afghanistan and at Landi Kotal, Miran Shah and Para

Chinar in NWFP, Pakistan.

As BOK is planning to step in the Islamic Banking System so they

should capture this market before any competitor comes in.

Construction work is in progress on Deans Trade Center the biggest

Trade Center of Asia. It will attract the business community and

multinational companies to flourish over here. BOK can avail this

opportunity by opening a new branch in Deans.

The bank has opportunities to invest in the mineral resource sector of

the KHYBER PAKHTUNKHWA. As the lending rate are coming

down so the bank can Business Administration the small project vary

easily.

Access to gulf countries where thousands of KHYBER

PAKHTUNKHWA manpower forces is working.

There is good opportunity for the bank to sponsor games on provincial

and national levels for its publicity.

Strong promotional strategies can attract huge deposits for the bank.

The bank can expend their branch to other industrial cities in the

country.

36

The bank has a major opportunity to invest in different project in

Afghanistan.

The bank has also to invest in small loan to promote leather products.

In the present time the Overseas Pakistani are interested to invest in

Pakistan so the bank has the opportunity to invest with them in a

different project.

The bank has an opportunity to invest in the new mark segments like

IT, business, software business etc.

Offering of credit facilities to middle and lower in come groups can

reduce the default risk and can enhance the bank good will and

profitability.

7.4 Threats

Threats are also part of your external environment and pose a constant danger to an

organization’s operations. However, a proficient is the one that converts these threats

into opportunities for it.

Increasing number of private foreign bank in the country.

The e- banking facility offered by different national and international

banks is a serious threat to BOK. The bank should soon offer the e-

banking facility to maintain their customers.

The low rate of savings in the country is a serious threat to BOK. They

should aware the general public about the advantages of savings and

investments.

Global technology advancement.

The disturbed political and legal environment of the country is also a

threat to the bank.

Reducing in business activities.

37

The decreasing confidence of people on commercial banks on the basis

of offering low returns and charging high interest rates is a threat to the

BOK also.

The failure of other KHYBER PAKHTUNKHWA based banks has

shattered the bank image and the confidence of the investors.

No proper marketing of the BOK.

Quality services provided by the private bank.

CHAPTER # 8

FINANCIAL ANALYSIS

8.1 THREE YEARS BALANCE SHEETASSETS 2012 2013 2014

38

Cash & balances with treasury banks

Balances with other banks

Lending to financial institutions

Investments

Advances

Fixed assets

Deferred tax assets

Other assets

32,687,335

21,581,043

3,315,500

75,9732,38

192,671,169

13,773,293

        -

8,989,186

24,789,070

9,713,369

27,050,493

57,416,255

118,864,010

 6,620,067

-

3,851,529

19,708,518

3,183,957

             -

35,503,196

 83,931,400

4,280,504

            -

3,226,959   

275,685,541   328,895,152    348,990,764

Liabilities 2012 2013 2014

Bills Payable

Borrowings

Deposits & other accounts

Sub- Ordinated loans

Lia against asset subj to finance lease

Fixed Liabilities

Deferred tax liabilities

Other liabilities

32,687,335

21,581,043

3,315,500

75,9732,38

192,671,169

13,773,293

        -

8,989,186

24,789,070

9,713,369

27,050,493

57,416,255

118,864,010

 6,620,067

-

3,851,529

19,708,518

3,183,957

             -

35,503,196

 83,931,400

4,280,504

            -

3,226,959   

263,443,596        312,675,308      331,946,025

39

8.2 THREE YEARS PROFIT AND LOSS STATEMENT

Liabilities 2012 2013 2014Mark-up / return / interest earned

Mark-up / return / interest expensed           

Net mark-up / return / interest income

Provision against non-performing advances

Provision for / (reversal of) diminution in the value of

Investments

Provision against off balance sheet obligations

Bad debts written off directly

 Net mark-up /interest income after provisions

  i)          Non mark-up / interest income

Fee, commission and brokerage income

Dividend income

Income from dealing in foreign currencies

Gain on sale of securities-net

Unrealized gain/(loss) on revaluation of investments

Classified as held for trading

Other income

Total non-markup / interest income

   ii)          Non mark-up / interest expense

Administrative expenses

Other provisions / write offs

Other charges

Total non-markup / interest expenses

Extra ordinary / unusual items

 iii)          Profit before taxation

Taxation - Current

                - Prior years

                - Deferred

 iv)          Profit after taxation

Unappropriated profit brought forward

Transferred from surplus on revaluation of

     fixed assets on account of incremental depreciation

Profit available for appropriation

43,788,628

  13,634,912

  30153,716

    3,075,723

   (709,461)

       -

       5,284

2,371546

27,782,170

6,144,628

2,891,755

1,333,840

1,169,515

    (4,464)

    627,618

12,162,892

39,945,062

13,443,441

     (17,283)

      208,327

 13,634,485

26,310,577

                 -

26,310,577

  8,695,598

      530,652

       61,981

9,288,231

17,022,346

19,372,523

--------------

36,394,869

20.88

50,569,481

16,940,011

33,629,470

 4,723,084

(40,248)

      -

   39,899   

4,722,735

28,906,735

6,781,683

3,263,246

1,042,827

2,341,690

   (31,964)

   147,363

13,544,845

42,451,580

14,205,911

    168,027

      17,141

  14,391,079

 28,060,501

                   -

28,060,501

   8,311,500

     391,497

      323,731

  9,026,728

19,033,773

  32,074,677

         39,007

51,147,457

23.34

60,940,798

23,884,768

37,058,030

10,590,565

 373,249

   4,000

____-___

10,970,814

26,087,216

7,925,370

2,878,932

3,969,057

   395,427

1,707

1,245,369

16,415,862

42,503,078

18,171,198

      747,521

      583,361

19,502,080

23,000,998

                  -

23,000,998

11,762,650

                 -

 (4,220,240)

  7,542,40815

,458,590

 45,344,188

      130,456

60,933,234

17.48

(Data Source: BOK Financial Statements)

40

8.3 RATIO ANALYSISRatios provide the means of showing the relationship, which exists between, figures

of the Balance Sheets and Income Statements. The analysis is undertaken to assess

important characteristics of business like liquidity, solvency and profitability. A study

of these aspects enables drawing conclusions as to financial requirements and

capabilities of business units. Ratios may be classified in a number of ways to suit any

particular purpose. Different kinds of ratios are selected for different types of

situations. Some of the ratios calculated for BOK are given below.

8.3.1 LIQUIDITY RATIO

Comparison gives an indication of the short-term debt paying ability of an entity.

Since a bank is also a business firm so to maintain adequate liquidity is also crucial to

carry out business activity.

8.3.1.1 Current Ratio

It is used to measure the ability of an enterprise to meet its current liabilities out of

current assets.

Current Ratio = Current Assets / Current Liabilities

                                                       (Rupees in’000)

2012 2013 2014

Current Assets 19,425,608 29,526,710 33,228,530

Current liabilities 16,952,908 26,983,946 29,328,629

Current Ratio 1.15 1.09 1.13

INTERPRETATION

The current ratio of BOK, for the year 2014, is 1.13 times of current liabilities. It is

good to meet the short-term obligations, when compared with the current ratio 2013,

which is 1.09 times of current liabilities. The company should maintain minimum

limit of current ratio for Bank i.e.1.

8.3.1.2 Net Working Capital

Working capital compares current assets to current liabilities, and serves as the liquid

reserve available to satisfy contingencies and uncertainties. A high working capital

balance is mandated if the entity is unable to borrow on short notice. The ratio

41

indicates the short-term liquidity of a business and in determining if a firm can pay its

current liabilities when due.

Net Working Capital = Current Assets – Current Liabilities

(Rupees in ‘000)

2012 2013 2014

Current Assets 19,425,608 29,526,710 33,228,530

Current liabilities 16,952,908 26,983,946 29,328,629

Net Working Capital    2,472,700 2,542,764 3,899,901

INTERPRETATION

Net working capital of 2014 increases from year 2013. This is safety cushion to

creditors. The volume of net working capital is showing positive trends.

8.3.2 DEBT RATIOS / SOLVENCY RATIONS

Solvency is a company’s ability to meet its long-term obligations as they become due.

An analysis of solvency concentrates on the long-term financial and operating

structure of the business.

8.3.2.1 Debt to Asset / Debt Ratio

 Provides information about the company's ability to absorb asset reductions arising

from losses without endangering the interest of creditors.

Debt Ratio = Total Liabilities / Total Assets

(Rupees in ‘000)

2012 2013 2014

Total Assets 21,308,247 32050073 35,368,894

Total liabilities 16,952,908 26,983,946 29,328,629

Debt Ratio 0.7956 0.8419 0.8292

DEBT RATIO

42

INTERPRETATION

Creditors prefer low debt ratio, debt ratio shows that how much asset the company has

to honor their obligations. This ratio is increased from 0.8419 to 0.8292. This is a

good for the company because the company has 1 asset to pay 0.8292 debts.

8.3.2.2 Debt to Equity Ratio

Indicates how well creditors are protected in case of the company's insolvency. The

debt to equity is a significant measure of solvency since a high degree of debt in a

capital structure may make it difficult for the company to meet interest chargers and

principal payments at maturity.

Debt to Equity Ratio = Total Debt / Total Stockholder’s Equity                       

(Rupees in ‘000)

2012 2013 2014

Total Debt   16,952,908 26,983,946 29,328,629

Total Equity 5,126,230 6,017,780 6,776,030

Debt to Equity Ratio 3.307 4.484 4.328

INTERPRETATION

Debt to equity ratio is the relationship borrowed funds and owner’s capital and equity

multiplier is the relationship between total assets and total equity. But it is good that

the ratio is decreasing in 2012 than 2014. The overall leverage position is showing

better trend as compare to previous years.

8.3.3 PROFITABILITY RATIOS

 This ratio shows that what percentage of net profit to the total income is.

8.3.3.1 Net Profit Margin

This ratio measures the firm’s profitability of sales/ interest earned after taking

account of all expenses and income taxes. This ratio can be calculated as:

43

Net Profit Margin = Net Profit / Revenue *100

(Rupees in ‘000)

2012 2013 2014

Net Profit 1,702,234 1,903,377 1,545,859

Revenue 4,378,862 5,056,948 6,094,079

Net Profit Margin 38.87% 37.64% 25.37%

NET PROFIT MARGIN

INTERPRETATION

From the calculation it is very much clear that the performance of BOK is very good

still to 2012. And the trend is upward. It tells us a firm’s net income per rupee of

revenue. As the trend is upward it shows the high profits in revenue per rupee in case

of BOK. It is because of high advances the BOK has given to the people but in 2013

the ratio trend is downward which not good for BOK.

8.3.3.2 Return on EquityMeasures the income earned on the shareholder's investment in the business.

Return on Equity = Net Income / Average Total Equity

(Rupees in ‘000)

2012 2013 2014

Net Profit

(After Tax Profit)

1,702,234 1,903,377 1,545,859

Total Equity 5,304,464 6,927,063 8,136,700

Return on Equity 32.09% 27.48% 18.99%

INTERPRETATION

It is decreasing every year with different rate. This condition is not good for BOK

because every investor want to earn high income on his investment.

8.3.3.3 Return on Total Assets

Measures the company's ability to utilize its assets to create profits.

44

            Return of Total Assets = Net Income / Average Total Assets *100

(Rupees in ‘000)

2012 2013 2014

Net Profit

(After Tax Profit)

 1,702,234 1,903,377 1,545,859

 Total Assets 63,513,271 76,219,359 81,775,832

Return on Total

Assets

2.68% 2.50% 1.89%

INTERPRETATION

The results show that the Return on Asset are decreased which show that the BOK

Assets are not properly utilize in 2014 or may be there are no proper environment for

Banking sector because in 2013 Pakistan face the economic crisis.

8.3.4 BANK SPECIAL RATIO

8.3.4.1 Investment to Asset Ratio

Investment to Total Assets = Investment / Total Assets

(Rupees in ‘000)

2012 2013 2014

Investment   2,974,087 3,019,266 2,822,723

 Total Assets 21,308,247 32,050,073 35,368,894

Investment to Total

Assets

0.14 0.09 0.08

INTERPRETATION

45

This ratio indicates that out of total asset how much bank utilize its asset for further

investing. This ratio in decrease in 2014, which is not useful for the bank to enhance

its revenues.

8.3.4.2 Advances to Deposit Ratio

Advances to Deposit Ratio = Total Advances / Total Deposit

(Rupees in ‘000)

2012 2013 2014

Total Advances   11,347,979 18,073,501 20,589,613

 Total Deposit 16,114,461 25,458,910 27,980,906

Advances to Deposit

Ratio

70.42% 70.99% 73.58%

INTERPRETATION

Loans or advances are the major assets of a bank while deposits are major liabilities

of a bank. Higher ratio shows the better solvency of bank.

8.3.4.3 Cash to Deposit Ratio

Cash to Deposit Ratio = Cash / Deposit

(Rupees in ‘000)

2012 2013 2014

Cash 1,992,425 2,691,572 2,932,264

 Total Deposit 16,114,461 25,458,910 25,980,906

Cash to Deposit

Ratio

12.36% 10.57% 11.29%

INTERPRETATION

This ratio shows that how much cash you have to pay the liabilities (deposits). As this

ratio show that company has fewer amounts of cash than deposits. It also indicates

46

that bank is investing so the bank is enhancing its business. But at the same time it

could be risk for bank for liquidation.

8.3.4.4 Equity to AssetsEquity to Assets = Equity / Total Assets

(Rupees in ‘000)

2012 2013 2014

Equity    5,126,230 6,017,780 8,136,700

 Total Assets 21,308,247 32,050,073 35,368,894

Equity to Total

Assets

24.06% 18.78% 19.16%

INTERPRETATION

This ratio shows the position of equity in total assets of business. This ratio is in

increasing trend. But the bank should increase its equity by increasing the wealth of

shareholders.

8.3.4.5 Equity to DepositsEquity to Deposit = Equity / Deposits

(Rupees in ‘000)

2012 2013 2014

Equity   5,126,230 6,017,780 8,136,700

 Total Deposits 16,114,461 25,458,910 25,980,906

Equity to Total

Deposits

31.81% 23.64% 31.32%

INTERPRETATION

This ratio shows that how much equity part is there in total structure. The capital

advocacy requirement is 28%. The bank was not fulfilling the requirement in 2013 &

2014but now bank has 31.32%, which is good.

47

8.3.4.6 Earning Per Share

Earning Per Share = Net Income / No of Ordinary Shares

(Rupees in ‘000)

2012 2013 2014

Net Profit

(After Tax Profit)

  1,702,234 1,903,377 1,545,859

No of Ordinary

Shares

70,907,129 81,543,198 89,697,510

Earning Per Share

(EPS)

24 23.34 17.23

INTERPRETATION

As their earnings per common share is good year by year it mean that results of the

ratio indicate that firm has paid a handsome return on investment showing the profit

generations. Because the company’s net income is increasing gradually. As shown

above the bank basic earning per share is increasing due to increase in net income.

This shows how mush profit each share has earned in any particular year. It is most

important ratio for peoples who decide about investing their money. Although it

decreased in 2014 but the overall performance is good.

8.3.3.3 Return on Total Investment

Measures the income earned on the shareholder's investment in the business.

Return on Investment = Net Income / Total Investment

(Rupees in ‘000)

2012 2013 2014

Net Profit

(After Tax Profit)

1,702,234 1,903,377 1,545,859

Total Investment 5,304,464 6,927,063 8,136,700

Return on

Investment

32.09% 27.48% 18.99%

48

INTERPRETATION

It is decreasing every year with different rate. This condition is not good for BOK

because every investor want to earn high income on his investment.

8.3.3.3 Return on Fixed Assets

Measures the company's ability to utilize its fixed assets to create profits.

Return on Fixed Assets = Net Income / Average Fixed Assets *100

(Rupees in ‘000)

2012 2013 2014

Net Profit

(After Tax Profit)

 1,702,234 1,903,377 1,545,859

 Total  Fixed Assets 63,513,271 76,219,359 81,775,832

Return on Fixed

Assets

2.68% 2.50% 1.89%

INTERPRETATION

The results show that the Return on Asset are decreased which show that the BOK

Assets are not properly utilize in 2014 or may be there are no proper environment for

Banking sector because in 2013 Pakistan face the economic crisis its assets to create

profits.

8.4 VERTICAL ANALYSIS

In vertical analysis a significant item of a financial statement is used as a base value,

and all other items of the financial statement are compared to it. In balance sheet, total

assets are assigned 100%. Each asset account is expressed as a percentage of total

assets. Total liabilities and stockholder’s equity is also assigned 100%. Each liability

and equity account is then net income is given the value of 100% and all other

amounts are evaluated in comparison to net sales. The resulting figures are then given

a common size statement.

49

Vertical Analysis (Rs 000)Bank of Khyber Pakistan Ltd. Balance Sheet

For the year ended Dec 31, 2014…

ASSETS

2012 2013 2014

% % %

Cash & balances with treasury banks

Balances with other banks

Investments-net

Lending to financial institutions

Advances- net

Operating Fixed assets

Deferred Tax Assets

Other assets-net

12.38

6.40

22.03

3.62

49.77

1.52

-

4.27

12.45

4.92

27.70

2.82

44.65

3.40

-

4.07

13.03

4.69

20.89

2.09

50.50

2.96

0.39

5.45

Total Assets 100 100 100

LIABILITIES

Bills Payable

Borrowings

Deposits & other accounts

Liabilities against asset subject to finance

lease

Deferred tax liabilities-net

Other liabilities

1.92

2.12

90.2

.002

0.43

5.80

1.09

1.68

91.65

0.005

0.78

4.79

1.45

5.65

87.36

.003

0.00

5.54

Total liabilities 100 100 100

NET ASSETS PRESENTED BY

Share capital

Reserve

Unappropriated profit               

Surplus on revaluation of assets

8.65

16.94

39.14

64.73

35.27

7.00

13.56

38.98

59.55

40.46

8.75

19.46

51.19

79.40

20.60

Total Liabilities and Equity 100 100 100

50

Bank of Khyber Pakistan Ltd.

Profit & Loss Account

Vertical Analysis (Rs 000)

For the year ended Dec 31, 2014

2012 2013 2014% % %

Mark-up / return / interest earned

Mark-up / return / interest expensed

100

31.63

100

33.50

100

39.19

Net mark-up / return / interest income 68.37 66.50 60.81

Provision against non-performing

advances

Provision for diminution in the value of

Investment

Provision against off balance sheet

obligations

Bad debts written off directly

6.97

(1.61)

-

0.01

5.37

9.34

(0.08)

-

0.08

9.34

6.98

0.61

0.006

-

7.96

Net mark-up /interest income after provisions 63.00 57.16 52.85

Non mark-up interest income

Fee, commission and brokerage

income

Dividend income

Income from dealing in foreign

currencies

Gain on sale of securities-net

Unrealized gain/(loss) on

revaluation of investments

Classified as held for trading

Other income

Total non-markup / interest income

13.93

6.56

3.02

2.65

(0.01)

1.42

27.57

13.41

6.45

2.06

4.67

(0.06)

0.29

26.78

13.21

3.16

6.64

1.04

0.21

0.23

26.54

90.58 83.95 70.64

51

Non mark-up / interest expense

Administrative expenses

Other provisions / write offs

Other charges

Total non-markup / interest expenses

30.48

(0.04)

0.47

30.92

28.09

0.33

0.03

28.46

26.21

0.41

0.85

31.73

Profit before Taxation 59.66 55.49 38.91

Taxation – Current

                - Prior years

    - Deferred

19.72

1.20

0.14

16.44

0.77

0.64

19.03

-

(6.92)

21.06 17.85 12.11

Profit After Taxation 38.60 37.64 26.68

Unappropriated profit brought

forward

Transferred from surplus on

revaluation of fixed assets     on account

of incremental depreciation

44.24

-

63.42

0.08

74.40

0.21

Profit available for

appropriation

82.84 101.14 101.29

In balance sheet of bank the most important item is earning assets. There are four

earning assets. Bank has strong earning assets like advances investments and lending

to financial institutions has major percentage in of assets of bank. In liability and

equity analysis the borrowing from financial institutions and deposits have major

portion and reserve and share capital has major portion in equity. Out of the three

earning assets (lending to financial institutions, advances and investments) only

advances have recorded a growth while Lending’s to financial institutions and

Investments fell respectively.

Vertical analysis of profit and loss shows increase or decrease in each item as a

percentage of sales means that sales are chosen as key figure. As we have seen in the

table the interest expense is increasing with the turnover so the bank is more utilizing

on expenses. Net Interest income was 10% higher this year to Rs 37.058 billion owing

to volume growth. The interest earned in the 12 months of 2014 is 21% higher than

that of 2013 but it was matched by more than proportionate increase in the interest

52

expenses, which rose by 41%. So in vertical analysis the net interest income is

decreased in 2014 as compare to 2013.

BOK directors give some of reasons in increasing in interest expenses.

        Firstly, the banks have been imposed a minimum of 5% deposit rate on all the

savings schemes. This had previously been left at the banks' discretion as to how

much they have to pay. A few of the banks have also been penalized by the SBP for

acting like cartel in deposits.

        Secondly, there has been other attractive scheme from the National Savings, which

offered better rates and drained the liquidity from banking sector.

        Furthermore, the economy was going through high inflation, so the people were

not too optimistic about saving in banks as the money was losing its value very fast.

 Administrative expenses shows decreasing trend also the profit after tax is in

decreasing position during last two years, that position in not good for the company.

Only profit available for appropriation is increasing as compare to previous years,

which is 101.29% in 2014.

8.5 HORIZONTAL ANALYSISIn horizontal analysis different period’s data is compared and in one year item is

selected and item is compared with the same category of item of next period. In this

analysis the year should be consecutive for the analysis and then percentage

difference is taken to see the performance over the period of time. This analysis is

used to evaluate the trend in the accounts over the year.

53

Bank of Khyber Pakistan Ltd.

Balance Sheet

Horizontal Analysis (Rs 000)

For the year ended Dec 31, 2014

ASSETS

2012% 2013% 2014%

Cash & balances with treasury banks

Balances with other banks

Lending to financial institutions

Investments-net

Advances- net

Operating Fixed assets

Other assets-net

20.67

(7.80)

(6.73)

50.87

7.65

167.74

14.31

12.26

2.32

(20.02)

(19.09)

21.35

6.58

43.73

11.35

20.41

(40.25)

(15.50)

15.55

24.12

7.69

Total Assets 20.01

100

7.29 23.37

LIABILITIESBills Payable

Borrowings

Deposits & other accounts

Liabilities against asset subject to finance

lease

Deferred tax liabilities-net

Other liabilities

(33.41)

(6.99)

17.94

153.52

113.56

16.07

44.71274.09

6.24

(24.67)

(100)

28.17

24.60

(90.90)

25.17

(32.15)

25.14

23.45

Total liabilities 16.75

100

10.75 (24.69)

54

NET ASSETS

PRESENTED BYShare capital

Reserve

Unappropriated profit               

Surplus on revaluation of assets

15.00

13.64

41.37

30.59

62.81

10.0026.43

15.68

17.46(55.18)

19.3530.22

16.35

25.35

(41.89)

Total Liabilities and Equity 41.95

100

(11.93) 49.38

55

Bank of Khyber Pakistan Ltd.

Profit & Loss Account

Horizontal Analysis (Rs 000)

For the year ended Dec 31, 20142012 2013 2014

Mark-up / return / interest earned

Mark-up / return / interest expensed

14.67

21.46

20.93

40.96

35.23

22.48

Net mark-up / return / interest

income

11.53

66.50

10.84 30.15       

Provision against non-performing

advances

Provision for diminution in the value

of Investment

Provision against off balance sheet

obligations

Bad debts written off directly

53.56

-94.33

53.56

655.09

99.14

124.23

-265.22

-92.13

-89.97

   133.13

46.25        

175.25

40.35

-35.45

55.16

Net mark-up /interest income after

provisions

4.05

57.16

-9.14 40.75       

56

Non mark-up interest income

Fee, commission and

brokerage income

Dividend income

Income from dealing in foreign

currenciesGain on sale of securities-

net

Unrealized gain/(loss) on

revaluation of investments

Classified as held for trading

Other income

Total non-markup / interest income

10.37

12.85

(21.82)

100.23

616.04

(76.52)

11.36

17.75

(36.04)

285.6

(83.04)

(502)

745.10

   21.19

20.89

64.23

236.25

(75.16)

  (302)

421.23

25.36

6.27

83.95

0.12 27.26       

Non mark-up / interest expense

Administrative expenses

Other provisions / write offs

Other charges

Total non-markup / interest

expenses

5.67

1072.21

(91.77)

5.55

29.27

344.88

347.19

   36.88

24.25

362.21

204.10

 60.25

Profit before Taxation                        55.49 35.51 70.29

Taxation – Current

                - Prior years

    - Deferred

(4.42)

(26.22)

422.31

41.95

(100)

(1403.62)

40.36        

90.25

(1254)

Profit After Taxation 11.82

37.64

(18.73) 52.45       

Unappropriated profit b/f transferred

Trans from surplus on revaluation of

fixed  assets on account of incremental

depreciation

65.57

100

41.37

234.44

100.45

175.88

57

Profit available for

appropriation

40.38

101.14

19.13 72.65       

The horizontal analysis of the balance sheet of the bank shows that current assets

increases over the period of time, the increase in cash and decrease in loan shows that

company wants to have more cash in hand rather than lending it to others and losing

the return on that investment. as for as the fixed assets of company are concern they

are showing increasing trend and same is case with the current and long term

liabilities but the increasing trend in assets is lower than the increasing trend in

liabilities which in not a good position for the bank .as shown in the table borrowing

are more increase in 2014.

The horizontal analysis of Profit & Loss account of years 2012-2014 shows a

continuous decrease in mark up, non mark up and also there is a rapid and huge

decrease in the profits in 2013. The administrative expenses have been decrease in

2013 but again it will increase in 2014

The income after tax is decrease, which was 19% lower than the income earned in

2012. The bank profits before tax are increasing trend, which is 18% higher than the

previous year of 2013. The management of the bank gives many reasons of the radical

change in profitability. First of all, adverse economic conditions domestically, the law

and order, power shortages, record high inflation, liquidity in the banking system,

steep rise in interest rates, increase in government borrowing from the central bank,

rising import bill and resulting growth in fiscal deficit.

The interest expense is also increase in 2013-2014. The management give different

reasons that the banks have been imposed a minimum of 5% deposit rate on all the

savings schemes. This had previously been left at the banks' discretion as to how

much they have to pay. A few of the banks have also been penalized by the SBP for

acting like association in deposits. Secondly, there has been other attractive scheme

from the Savings, which offered better rates and drained the liquidity from banking

sector. Furthermore, the economy was going through high inflation, so people were

58

not too optimistic about saving in banks as the money was losing is value very fast.

The provisions against non-performing loans were 124% higher as compared to 2012.

The advances recorded an increase because the bank was lending though very

prudently due to increasing NPLs (Non-performing loans). Along with the increase in

Advances, the composition has also changed a bit. A shift from long-term to short-

term loans is observed.

59

CHAPTER # 9 RECOMMENDATIONS

& CONCLUSION

BOK has a very important role in the economy of Pakistan. It has a significant share

in the up gradation of banking sector of Pakistan and also in the development of the

people of Pakistan.

BOK (Abbottabad) is getting better and better with every passing year which shows

that bank has sufficient funds to overcome the liabilities. The profitability position

shows decline with the passage of every years. It is not good because they have low

profit and they will have not much to pay shareholder.

The over all consolation after the financial analysis is that although BOK is

performing excellent job in the banking sector and has a high and gradually position

but still its profit is declining either in return on assets, return on equity which is a

discouraging thing for the existing as well as interesting shareholder and it is due to

the insufficient use of assets and unnecessary expenditure.

During the short span of two months internship in BOK Abbottabad branch and

roughly spent one week on each counter, this short span is not sufficient for having all

the information about the organization. But although though some observations it is

pointed out that there are some shortcomings in the bank, which are absorbed and

experienced, and also narrated by the concerned personnel of the bank

9.0 RecommendationsThe Bank of Khyber is a new emerging bank and it is trying to get the market share in

the presence of national and foreign banks. It has played an important role in certain

areas, but there always exists some room for improvement. The following findings

and recommendations are based on personal observations and analysis.

The given recommendation will help to cope the problems being faced by the bank

and Will enhance the efficiency and performance of the BOK.

60

9.1 Bank of Khyber can improve the profit by adopt following

policies. Forecasting:

Efficient forecasting may increase the profitability of the any organization. So

Forecasting needs to be introduced at BOK. Before packing any major decision it is

proper to judge decision, which they are likely to take, have any good or bad

implications for the bank and for the economy as a whole. It will help in better

planning.

Cost minimizing Strategy:

Decreasing the administrative expenses this was very high in 2013. That can be done

by lying off the surplus pool of employees with golden handshakes scheme. The

branches that are not much used could also close. That will give the positive result to

overcome the unnecessary expense and improve the profit.

Needs to be flexible in credit Policy:

BOK is very conservative in advances and loans policy it reduces the investment

opportunities. Also loans should be given to the small businessmen and the

agriculture sector at high markup rate. It should adopt credit policy while giving credit

to agriculture sector

Marketing Policy:

The branch should adopt various marketing strategy and promotion strategy to

promote the bank and its products. The most important in my opinion personal

marketing; it is the most effective of all when u think in term of branch level. But on

the whole organization level, they should arrange the seminar with in the bank and out

side the bank.

They should various prizing scheme just like allied bank (kar –amed scheme) bank

Alfalfa (monthly income earning scheme) and various others. With the help of these

policies BOK can improve the profit in future.

9.2 TRAINING PROGRAM:

The BOK does not have its own training academy. The training to newly recruited

Employees are given in the training academies of other banks. Similar is the case for

Existing employees to fulfill the requirements of training of the new and existing

61

Employees the BOK should establish the training academy. This will enable the

employees to receive training of the peculiar and specific working functioning of the

BOK

9.3 NEGLIGANCE OF HUMAN RESOURCE RULES:

In many organizations, human resource department is considered to be the key

department as it focuses on providing the organization with skilled personnel. In BOK

the prescribed rules are not being followed in their true spirit. It is recommended that

selection should strictly be made on the merit basis. Moreover, the employees should

be given job security they can concentrate on their jobs without any fear of losing the

job.

9.4 EDUCATING IN THE COMPUTER EXPERTISE:

BOK should take some steps in educating its employees in computer education. This

will enable them to work more efficiently towards the achievement of organizational

goals. The bank should float their shares and should raise their paid up capital to meet

the fund needs of the bank in future.

9.5 MISUSE OF OFFICE EQUIPMENT:

Misuse of telephone Internet, fax machines and other facilities available to the

employees of the bank must be handled properly.

9.6 RECRUITMENT ON MERIT BASIS:

In the BOK mostly recruitment are done through recommendation of the employees

or connecting play an important role in recruitment decisions. Recruitment should be

strictly on merit basis with no other favor given to any candidates. Selection should be

on the Basis of test and interview as like in Muslims commercial bank Ltd (MCB) and

other Banks etc. this will ensure the entry of competent and worthy employees in to

the bank.

9.7 SCHOLORSHIP PROGRAMS

Scholarship programs should be designed for senior employees and branch managers.

The Book should get into contract with top foreign universities. Every year the bank

62

Should Business Administration and send their senior managers for further education

abroad. After Completion of higher education the employees will be in a better

position to attain the strategic objectives of the bank and increase the over all business

and profitability portfolio of the bank.

9.8 IMPROVEMENT OF BRANCH NETWORK

The BoK has 34 branches all over Pakistan and Azad Kashmir. 23 of the total

branches are located in N.W.F.P. and there is only one branch for the whole of Punjab

province located in Lahore. For Sindh province there are two branches both located in

Karachi and similarly one branch for whole Azad Kashmir and one for Islamabad

This branch network is too small to compete with other banks. The branch network

should be improved and number of branches should increase to reach and provide

services to maximum number of customers.

9.9 SHORTAGE OF EMPLOYEES

Shortage of employees increases the workload on existing employees and

ultimately reduces the output and motivation level of employees. To overcome

this problem job descriptions should be revised and grouped together in order

to create new jobs.

Recruitment should be done in order to fill out these new vacancies. This way the

workload on employees will be reduced, operations will be stream lined and

employees will feel comfortable in performing their duties.

9.10 STAFF BEHAVIOUR

The behavior of the staff with customers is not very good. It needs improvement, and

should train employees regarding customer’s needs and requirements. In societal

marketing approach customer is the king. Also Lack Of Coordination among

employees.

63

REFERNCESBooks & Journals

1. Avashti, Shariran, (1983), Public Administration; sixth Ed, New

York: MC Graw Hill Book Company.

2. Asrar, H. siddique, (1983), Practice and law of banking in

Pakistan; 3rd Ed, Royal Book Co. Karachi.

3. Chhabra, T.N (1985), Principles and practice of management;

Delhi, D.R printing services.

4. Chruder Sherman, (1983) managing human resources; 7th Ed,

South Western pub.Co. Dallas, n.d.

5. Dewitt, K.K (1984), modern economic theory ; 3rd Ed, Bombary:

move publishing company.

6. Bank of Khyber, Annual Reports (2012,2013,2014)

WEB

1. http://www.BOK.com.pk/annualreports.html

2. http://www.google.com

3. http://www.sbp.org.pk

64